NBR keeps policy rate unchanged in April

At its 4 April meeting, the National Bank of Romania (NBR) left the policy rate unchanged at 7.00%. Additionally, the Bank left the deposit facility and the lending facility (Lombard) rates at 6.00% and 8.00%, respectively. The minimum reserve requirement was also left unchanged.

The NBR’s decision followed sticky inflation in the first two months of 2024. Heightened risks associated with the government’s fiscal and incomes policy stance also underpinned the Bank’s cautious approach. Looking ahead, the Bank expects inflation to decline over the coming months amid a strong base effect, declining import prices and lower inflation expectations. That said, the NBR reiterated that it sees upside risks to the 2024 inflation outlook stemming from uncertainty surrounding the future budgetary stance, upcoming pensions legislation and wage dynamics in the public sector.

The NBR provided no explicit forward guidance, merely reiterating that it would monitor “developments in the domestic and international environment and would continue to use the tools at its disposal to achieve the fundamental objective of price stability in the medium term”. Our panelists expect the first rate cut in Q2. The next monetary policy meeting is scheduled for 13 May.

Commenting on the outlook, economists at ING stated: “In our view, starting with May, the context sets the stage for a series of small, and possibly non-linear rate cuts ahead, with risks to our 6.00% year-end forecast for the key rate tilted to the upside. Interruptions in the rate cutting cycle are likely to be data dependent, especially as the ingredients for sticky inflation are still there and the Bank will want to fine-tune the level of policy restrictiveness in the coming quarters rather than risk turning growth supportive too early.”

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